Monday, 30 May 2016

The
views expressed are purely those of the author and may not in any circumstances
be regarded as stating an official position of the European Commission

Background

The recent judgment of the CJEU in the
case of Safe
Interenvios was triggered by a preliminary reference from the
Provincial Court in Barcelona (Audiencia Provincial). The Court in Barcelona
submitted to the CJEU a number of questions related to the interpretation of
the third Anti-Money Laundering Directive
2005/60/EC (AML Directive, since replaced by the fourth money laundering Directive,
discussed here).

In the case in question, Safe, a
company which falls under the definition of a "financial institution"
within the meaning of the AML Directive and of a "payment
institution" within the meaning of the Payment
Services Directive 2007/64 (PSD) has been transferring the funds of its
customers abroad through the accounts it held with 3 banks, BBVA, Sabadell and
Liberbank. The transfers were to be carried out by agents who were accordingly
authorised by Safe and verified by the Bank of Spain (Banco de España). After
discovering irregularities regarding Safe's agents the banks, acting under
Spanish Law 10/2010 on the prevention of money laundering and terrorist
financing[1]
which transposes the AML Directive in Spain requested various information from
Safe. When Safe did not provide them with the requested information the banks
closed its accounts. Before closing Safe's account BBVA informed SEPBLAC[2]
that Safe might be involved in money laundering activities.

Safe challenged the closure of its
accounts before the Commercial Court in Barcelona (Juzgado de lo Mercantil)
arguing that the banks have also been transferring funds abroad and that
insofar they have been competing with Safe on the same market. In consequence,
according to Safe, the closure of accounts was an act of unfair competition.
Safe argued further that the information requested by the banks which related
to Safe's customers as well as to the origin and destination of the funds could
not have been provided without breaching the data protection legislation.

Safe's challenge was largely
unsuccessful as the Commercial Court in Barcelona did not find a specific
infringement of competition law by none of the banks. It concluded that BBVA
closed Safe's account on the basis of checks which showed that nearly a quarter
of transactions were not carried out by agents authorised by Safe and verified by
the Bank of Spain. As for the closure of accounts by Sabadell and Liberbank,
the court in Barcelona partly ruled in Safe's favour concluding that these two
banks failed to properly set out the reasons for their closures.

Subsequently Safe, Sabadell and Liberbank
appealed against that judgment to the Provincial Court in Barcelona which
submitted the preliminary questions to the CJEU.

The CJEU was asked, first, whether customer due diligence
measures, laid down in the AML Directive to respond to the risks of money
laundering and terrorist financing, could be applied by a credit institution
(in the case at hand, a bank) to a financial/payment institution such as Safe,
given that financial/payment institutions are already subject to supervision by
competent authorities under the PSD and the AML Directive. The CJEU was then
additionally asked what type of customer due diligence measures (standard,
simplified or enhanced) could be applied in such a scenario and which
circumstances could trigger the application of those measures. Finally, the
national court asked if the measures and the provision of certain information
requested by the banks from Safe are in line with EU competition law (Safe
claimed that the banks compete with it on the payment services market) and with
EU data protection law (according to Safe, the banks requested the
identification data of its customers and of the recipients of the funds which
Safe transferred).

The AML Directive sets out the legal
framework for measures aimed at preventing and combatting money laundering and
terrorist financing. Its provisions are to a great extent inspired by the
recommendations of the Financial Action
Task Force (FATF), the main international body in the area of combatting
money laundering and terrorist financing.
Article 3 of the AML Directive defines which institutions and
professions are to apply the anti-money laundering measures. The list in
Article 3 includes credit institutions such as banks and financial institutions
such as Safe. Chapter II of the AML Directive, which deals with customer due
diligence, distinguishes between 3 types of such diligence, i.e. simplified,
standard and enhanced.

As far as standard due diligence is
concerned, Articles 7 and 8 of the AML Directive describe in which circumstances
due diligence should be applied and what measures this might involve. The
latter provision underlines that the extent the due diligence measures can be
determined on a risk-sensitive basis depending on the type of customer,
business relationship, product or transaction.

Article 9 of the AML Directive
specifies the checks that need to be undertaken before the establishment of a
business relationship or the carrying-out of a transaction. It also indicates
when a business relationship must be terminated or a transaction cannot be
carried out.

Article 11 sets out the simplified
customer due diligence measures which inter alia apply in situations where the
customers are credit institutions or financial institutions. Such customers are
already covered by the scope of Article 2 of the AML Directive and need to
apply due diligence measures towards their own customers. Enhanced customer due
diligence is dealt with in Article 13.

Pursuant to Article 37 of the AML
Directive the compliance with the requirements of the Directive by the
institutions and persons that need to apply it is supervised by competent
authorities. Credit institutions and payment
institutions are also covered by the PSD.

Payment institutions get authorised to
provide payment services by competent authorities designated by the Member
States. These authorities are also empowered to supervise the compliance with
the requirements that are applicable to payment service providers.

The
CJEU's analysis

The CJEU first dealt with the question
if financial institutions such as Safe can be the addressees of standard or
enhanced customer due diligence measures despite the derogation in Article 11
of the AML Directive which foresees the application of simplified due diligence
measures towards financial institutions.

The Court underlined that Article 11 of
the AML Directive does not derogate from Article 7(c) under which standard
customer diligence measures must be applied when there is a suspicion of money
laundering or terrorist financing. Thus, a national provision which authorises
the application of standard due diligence measures vis-à-vis financial
institutions in such circumstances of suspicion is compatible with the
Directive.

In a similar vein, Article 11 of the
AML Directive does not derogate from Article 13 thereof. The latter requires
enhanced customer due diligence measures to be applied in situations where the
risk of money laundering or terrorist financing is higher. Paragraphs (2) to
(4) of Article 13 contain a non-exhaustive list of such situations which by
their nature present a higher risk. Whilst this list does not include the
transfer of funds abroad the Member States have a margin of discretion in
applying a risk-based approach and identifying other situations which are, by
their nature, associated with a greater risk of money laundering or terrorist
financing. In the case at hand, the transfer of funds abroad was included by
the Spanish legislator in Law 10/2010 (Article 11) as one of the higher-risk
situations which trigger enhanced customer due diligence.

The CJEU then dealt with Article 9 of
Spanish Law 10/2010 which on the one hand allows the non-application of
standard customer due diligence towards financial institutions but on the other
hand empowers the Minister of Economic Affairs and Finance to exclude the
application of simplified due diligence towards certain customers. On this
point, the CJEU noted that the AML Directive only lays down the minimum level
of EU harmonisation with Article 5 of the Directive envisaging the possibility of
adopting or retaining in force stricter provisions in the EU Member States.
This conclusion was supported by an earlier CJEU judgment in Jyske
Bank Gibraltar. The stricter provisions which can apply in the Member
States need to serve the purpose of strengthening the fight against money
laundering and terrorist financing. They may thus also relate to additional
situations which, according to the Member State, present a risk of money
laundering or terrorist financing even
if the AML Directive does not prescribe any type of customer due diligence for
those situations.

The second group of questions before
the CJEU related to the extent of powers which credit institutions may exercise
in the context of customer due diligence and to the relation between those
powers and the powers of the supervisory authorities under Article 37 of the
AML Directive and under Article 21 of the PSD. Here, the Court noted that an
institution covered by the AML Directive cannot establish a business
relationship or carry out a transaction through its account or must terminate
an existing business relationship when it is unable to obtain the various items
of information that are defined in
Article 8 of the Directive. These items include the verification of the
customer's and the beneficial owner's identity (in the latter case pursuant to
a risk-based approach) as well as the information on the purpose and intended
nature of the business relationship. The inability of the institution to obtain
these types of information might be due to the customers' refusal to cooperate
(as in the case at hand) or to other factors.

The CJEU went on to identify the
limitations that need to be applied when taking a measure such as the
termination of a business relationship or the refusal to carry out a
transaction through the bank account. The measure must be proportionate to the
risk of money laundering or terrorist financing and thus cannot be taken in the
absence of sufficient information which point out to that risk.

The Court then stated that the powers
exercised in the context of customer due diligence and the supervisory powers
of the competent authorities under the AML Directive and the PSD are rather to
be seen as separate and complementary. In consequence, a credit institution may
take account of the due diligence measures which its customer had to apply
towards its own customers but the extent of the credit institution's due
diligence measures in such a scenario must be appropriate to the risk of money
laundering and terrorist financing. In addition, a credit institution must in
that case neither compromise the supervisory tasks of the competent
institutions under the PSD nor replace those supervisory authorities.

Next, the CJEU spelled out the
conditions in which the national legislation can authorise or require standard
or enhanced customer due diligence measures towards a financial institution.
The CJEU's reply to the first group of questions indicated already that such
measures can be applied vis-à-vis financial institutions pursuant to Article 13
of the AML Directive (enhanced due diligence) and Article 5 (stricter
provisions). In this part of the judgment however the Court examined how the
Member States (when prescribing such measures) or the credit institutions (when
authorised by the Member State to apply such measures) can exercise the powers
under Article 5 and 13.

The CJEU started by recalling its
case-law on the freedom to provide services and on the permissible restrictions
of that freedom (Art. 56 TFEU). It reminded that in Jyske Bank Gibraltar the prevention of and fight against money
laundering and terrorist financing was recognised as a legitimate public
interest objective which could justify a barrier to the freedom to provide
services. It then turned to the question if Article 11 of Spanish Law 10/2010
which identifies the transfer of money abroad as a situation which always
presents a higher risk of money laundering and terrorist financing (and in
consequence triggers enhanced customer due diligence) is appropriate for
attaining this legitimate public interest objective. In that regard, the Court
stressed that both the national legislator (when prescribing standard or
enhanced due diligence measures towards a financial institution) and the credit
institutions (when authorised by the Member State to apply such measures) must
carry out a complete risk assessment prior to deciding on the measures to take.
Such measures must furthermore be proportionate to the risk so identified. The
final element of this part of the CJEU's judgment was thus dedicated to the
proportionality of Article 11 of Spanish Law 10/2010. Here, the Court concluded
that the restriction of the freedom to provide services laid down in Article 11
would be proportionate if no less restrictive means were available and if the
restriction was compatible with the fundamental rights and freedoms under the
Treaties and the Charter e.g. with the right to protection of personal data
(Article 8 of the Charter) and with the principle of free competition. Whilst,
in principle, leaving the protection of personal data aspects for the last part
of the judgment the Court found that a less restrictive measure was available
in this case. In the case at hand the Spanish legislator generally presumed
that all transfers of money abroad present a higher risk of money laundering
and terrorist financing whereas it could have provided a possibility of
rebutting that presumption in individual cases which objectively do not present
such a risk.

The last group of preliminary questions
put before the CJEU focussed on the compatibility of the enhanced due diligence
measures with the EU data protection law, as set out in the Data Protection
Directive (Directive 95/46). The Provincial Court in Barcelona asked if Safe
can be obliged to provide the banks with the identification data of its
customers and in particular those from whom the transferred funds originated as
well as with the identification data of the recipients of the funds. In the
reply to the previous group of questions the CJEU has already indicated that
the due diligence measures taken pursuant to Articles 5 and 13 of the AML
Directive need to be compatible with Article 8 of the Charter, i.e. with the
right to the protection of personal data. The reply to the last group of questions
could have thus elaborated on this statement and clarified which personal data
of the customers and recipients can be validly requested by credit
institutions. However, in the case at hand BBVA denied that it requested the
identification data of Safe's customers and of the recipients of the funds. It
merely requested the identification data of Safe's agents who used BBVA's
accounts. Moreover, the CJEU found the last group of questions not to be
sufficiently precise because they only referred generally to the Data
Protection Directive without specifying any of its provisions which could be
relevant in this context. The part of the preliminary questions which related
to the Data Protection Directive was therefore considered inadmissible.

Comments

The replies of the CJEU to the
preliminary questions point out in the direction of giving a certain degree of
flexibility to the national legislators and to the institutions and persons
which apply customer due diligence measures. On the other hand, the measures
prescribed or authorised by the national authorities and the measures applied
in individual cases by banks and other institutions and persons covered by the
AML Directive need to be preceded by comprehensive risk assessments. Those risk
assessments should lead to the definition of measures which are appropriate to
the identified level of risk. The measures can vary depending on the type of
customer, business relationship, product or transaction.

This kind of well-balanced approach
seems in line with the objectives of the AML Directive and with the CJEU's
case-law which recognised preventing and combatting money laundering and
terrorist financing as an overriding reason in the public interest.

The CJEU added a further safeguard at
the later stages of the judgment: the proportionality of the customer due
diligence measures depends not only on the results of the risk assessment but
also on their compliance with the fundamental rights and freedoms and general
principles of law. The Court specifically mentions the principle of free
competition and the right to the protection of personal data enshrined in
Article 8 of the Charter.

In Safe the CJEU did not however
provide any specific indications on the issue which personal data can be
requested from the customer in the context of due diligence measures and in
which circumstances. This was so because the last group of preliminary
questions was based on facts which were disputed in the proceedings and
eventually this last group was declared inadmissible by the Court.

The AML Directive does not really
address the matter how the measures it designs relate to the protection of
personal data. In fact, there is only one point in the text of the Directive
which touches upon that issue. It is Recital 33 which refers to the
applicability of national data protection laws and of the international
transfers rules of the Data Protection Directive in the context of the
transmission of information to the Financial Intelligence Units (FIUs) and the
disclosure of information about such a transmission.

On the other hand, the new fourth
Anti-Money Laundering Directive 2015/849 is much more outspoken in this
respect. Its Chapter V implicitly states that Article 7(e) of the Data
Protection Directive constitutes the legal basis for processing personal data
for the purpose of the prevention of money laundering and terrorist financing
by recognising, in Article 43, that such processing is a matter of public
interest. The same Chapter deals also with the issue of the information that needs
to be provided to the customer before establishing a business relationship or
carrying out an occasional transaction. Finally, it lays down more precise
indications with regard to the transmission of information to FIUs and to the
disclosure of that fact to the customers. According to Article 41(4) this issue
should be regulated in national laws which must strike the balance between the
access of the customer to the personal data and the interests of the proper
functioning of the anti-money laundering procedures and investigations.

The provisions on the different kinds
of customer due diligence are also more precise in the new Directive. There is
no longer a derogation from standard due diligence for financial institutions.
The Directive is now accompanied by three annexes. The first of these annexes
contains a non-exhaustive list of risk variables that shall be taken into
account when determining the extent of customer due diligence measures. The
second annex includes a non-exhaustive list of factors which point out to a
potentially lower risk of money laundering and terrorist financing, i.e. the
degree of risk that might trigger the application of simplified customer due
diligence. Finally, the third annex is a non-exhaustive list of factors
suggesting a higher degree of risk which requires the application of enhanced
customer due diligence. Generally speaking, the factors included in the three
annexes relate to types of customers, geographic areas,
and particular products, services, transactions or delivery channels. In
addition, Articles 17 and 18 of Directive 2015/849 envisage guidelines on the risk factors and the measures to be taken in
situations of simplified customer due diligence and enhanced customer due
diligence respectively. Such guidelines shall be issued by ESAs, i.e. the European
Supervisory Authorities (EBA, EIOPA and ESMA) by 26 June 2017.

[2]The Executive Service of the
Commission for the Prevention of Money Laundering and Financial Crime of the
Bank of Spain - Servicio Ejecutivo de la Comisión de Prevención de Blanqueo de
Capitales e Infracciones Monetarias del Banco de España.

The building of a Digital Single Market for
telecommunications is one of the main priorities of the current European
Commission.[i]
Yet, the achievement of an actual single market for telecoms is still far from
becoming a reality. The designed (multi-level) regulatory model for telecommunications
places sector-specific National Regulatory Authorities at the core in the
system for the implementation of the EU regulatory framework for telecoms.
Moreover, the enforcement of the framework corresponds to the Member States
under the national procedural autonomy. However, in order to preserve the legal
integrity of the EU rules, the consistent application of the EU telecoms
framework and the achievement of its policy objectives builds on a
sector-specific supervisory mechanisms that grants the European Commission
greater powers to monitor the different regulatory approaches of national
regulators: Articles
7 and 7a of the Framework Directive on
telecoms regulation.[ii] These articles put in
place a consultation and monitoring system of a post-legislative nature that
aims at consolidating the internal market for telecoms based on a combination of hard and soft law
techniques, but is this
system up to the task?

In
a nutshell, the case deals with a clash between the Dutch telecoms regulator,
which issued a regulatory decision implementing a Commission Recommendation on
termination rates,[iii] and the Dutch Trade and
Industry Appeals Tribunal, which overruled the National Regulatory Authority’s
(NRA) decision in the context of a procedure of judicial review following the
appeal of the regulatory decision by some market telecoms operators. In
particular, the national Court required the NRA to deviate from the Commission
Recommendation on the grounds that there were no reasons for justifying a
modification in the methodology used for calculating caps on termination rates.

However,
this is the second time that the regulatory decision following the
Recommendation is contested in front of the national court in The Netherlands.
Already in 2010, the Dutch regulator (at that time OPTA, now ACM[iv]) issued a decision in line
with the guidance provided in the Commission Recommendation on termination
rates. That triggered an initial response by the telecoms operators, who
appealed the regulatory decision. In very broad terms, and leaving aside further
competition concerns and issues of market analysis that were also object of the
plea, the Court, upholding the appeal, argued that despite the Commission’s
Recommendation on termination rates, conditions on the national market remained
unchanged and, therefore, there was no reason to adjust the methodology for
cost calculation in accordance with the Recommendation. Essentially, the court
concluded that the inefficiencies in retail pricing cannot be resolved by
imposing a “more invasive measure” at wholesale level, given that the retail
mobile market was already considered competitive.[v]
As a result, the Court established new cap prices for termination rates and
compelled the regulator to take a new decision setting the relevant rates on
the basis of a different cost-methodology than that suggested by the European
Commission. As part of the consultation procedure enshrined in Article 7a
Framework Directive, the national regulator notified the European Commission the
new decision compliant with the court’s judgment. In view of the Commission,
that decision could create a barrier to the Internal Market. This led to the
opening of a Phase II investigation under Article 7a procedure. Such a
situation placed the NRA in the middle of a “tug-of-war” between the European
Commission and the national judiciary. At that time, the national regulator
could do anything but to give effect to the judgment of the highest
administrative court in The Netherlands. However, two years later, in the
context of a new market analysis, the regulator –perhaps pressured by the
Commission’s investigation under the 7a procedure– issued a new decision
following the European Recommendation. As expected, the new decision was again
appealed in front of the national court. However, on this occasion, the
national court decided to refer the case to the European court for preliminary
ruling.

Issues at stake

In
brief, the national judge asked the European court to clarify the discretion of
the national judge[vi] to
depart from a EU Recommendation on the basis national legal and factual(!)
circumstances. The national court also seeks clarification as to the competence
of the national court to assess the proportionality of the NRA’s performance
within the context of the judicial review of regulatory decisions (Article 4 of
the Framework Directive). Accordingly, the case addresses three
fundamental legal (and institutional) tensions: 1) the legal and
factual effect of soft-law; 2) the institutional and substantial limits of
the judicial review of the activity of the national regulator; and 3)
the proportionality of the NRA’s regulatory activity when giving effect to
a EU Recommendation in a situation where the factual circumstances of a
national market remain unchanged (reflecting a clash between the national
regulator and the national judiciary).

So
far, we do not have a final Judgment from Luxembourg. However, the analysis of
the recently issued Opinion (28th April) already provides warnings
about the institutional problems that this case entails, in particular, for
those other NRAs in Europe that are facing a similar situation and that,
therefore, are awaiting a decision.

AG Opinion

In
the Opinion, AG Mengozzi holds that, despite its non-binding nature (para. 54),
the national court has to “take into consideration” the Recommendation on
termination rates (para. 57). Moreover, he also posits that the national judge
must act with “extreme caution” when deciding to depart from the methodology
suggested by the Commission (paras.53 and 64). Advocate General also considers
that it is not a problem of incompatibility of the national law with the EU
legal provisions. In particular, he states that he finds (para. 72)

“very difficult to conceive that the national law, as
it has stated that court, namely, as proceeds from Union law, requires, by its
wording and its capacity, departing from the calculation model recommended by
the Commission”

However,
and given that that does not mean
that there is only one appropriate model to give effect to the provisions
contained in the Access Directive[vii],
Mengozzi acknowledges, the
specific characteristics of the Dutch market could lead the national court to
depart from the recommended model (para. 75).

The
second part of the Opinion focuses on the assessment of proportionality of the
regulatory decision in accordance to the regulatory objectives to be pursued by
NRAs under the Framework Directive as part of the judicial review. In Mengozzi’s
view, the scope of judicial control of the regulatory activity reaches the
proportionality assessment (paras. 80 and 84). As to this proportionality
assessment, he holds that, in his view, following the Recommendation would
entail a presumption of proportionality with the EU regulatory objectives enshrined
in Article 8 of the Framework Directive; namely, promotion of competition,
contribution to the development of the Internal Market, and promotion of the
interests of the citizens of the European Union. This is important because the
regulator’s justification to impose an obligation in a regulated market
(wholesale) was based on the effects to be produced on a non-regulated market
(retail). Accordingly, when it comes to the burden of proof, and given that it
would require the demonstration
of an impossible (or excessively difficult to provide) evidence, he concluded that the national
court cannot require the NRA to sufficiently prove the effective achievement of the regulatory objectives (paras. 92 and
96).

Comments

Harmonizing
the Internal market under a multi-level governance structure is not an easy
task, and this case overly illustrates the difficulties that such endeavor
entails. The underlying issues that the case involves can be summarized as
follows:

1.First, should the European court follow AG’s Opinion
it would mean that the national judge, when deciding on the appeal, can
overturn the analysis performed by the regulatory authority, as it already did
with the first national ruling; i.e. the national judiciary would be acting as
a de facto regulator. This results in an institutional
conflict that slows down the integration of the telecoms market –the case has
been ongoing since 2010. In my view, this judicial spillover raises the
question as to whether the intervention of the national judiciary into the
regulatory activity needs to be balanced against the principles of equivalence
and effectiveness in the context of the implementation of a non-binding
instrument.

2.Secondly, the case casts doubts on the effectiveness
of the sector-specific supervisory mechanism put in place under Articles 7 and
7a procedures of the Framework Directive, and the limits and actual effect of
soft law as an integration tool.

3.Thirdly, the multi-level governance design upon which
the sector is build raises the question as to whether the national court should
be entitled to determine the effective
influence of national regulatory measures beyond the domestic marketplace. If
the ECJ agrees with the Opinion, it would be for the national judge to decide
on the effect of a national measure on the Internal Market – something that
should belong to the ECJ. This calls for further answers concerning the
viability of the telecoms market, as a fast-paced market, to coexist with
divergences in Europe or, rather, whether the regime should be upgraded (e.g.
more formal powers to the European Commission or the creation of a European
Telecoms Agency, something that has failed so far).

4.Finally, the related problem of building a single
market for telecoms under a multilevel governance system. Given the relevance
of the case for other NRAs around Europe that are facing similar situations,
most of the regulatory decisions from European NRAs involved investigations
initiated by the Commission under the abovementioned Article 7a procedure are on
hold until the case is decided.

Conclusions

The case addresses classic and timely
questions about the role and legal effect of EU soft law. In particular, when
it comes to the effectiveness of soft law mechanisms for market-integration
purposes; which is perhaps the most interesting aspect of the case.

Whatever
the final outcome will be, it will have remarkable consequences for the current
configuration of the telecoms institutional and procedural framework. One
possibility is that the European court does not allow the national judiciary to
depart from the Recommendation. In such case, it would mean that there is no
room for domestic adaptation and Article 7a procedure would then help to boost
non-binding decisions from the Commission. However, the other possibility is
that the court follows AG’s interpretation. In my view, allowing departure from
the Recommendation would render Article 7a procedure ineffective, provided that the national court
would define to what extent the effect on the Internal Market of a national
regulatory decision is sufficient so as to justify a mandatory compliance with
a non-binding European instrument.

Photo
credit: ispreview.co.uk

[i] Political Guidelines for the next European
Commission – A New Start for Europe: My Agenda for Jobs, Growth, Fairness and
Democratic Change (15 July 2014), Jean-Claude Juncker.

[ii] Directive 2002/21/EC of the European
Parliament and of the Council of 7 March 2002 on a common regulatory framework
for electronic communications networks and services (Framework Directive), as
amended by Directive 2009/140/EC and Regulation 544/2009.

[iii] Without much elaboration on the technical
details, termination rates are the rates which telecoms networks charge each
other to deliver calls between their respective networks; i.e. how much mobile
phone operators can charge to connect calls on each other’s networks. The
Commission Recommendation aims at harmonizing the costing methodology used in
the calculation of price caps for termination rates; Commission Recommendation (2009/396/EC) of 7
May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in
the EU. OJ L 20.5.2009, pp. 67-74.

[iv] OPTA (Onafhankelijke Post en
Telecommunicatie Autoriteit,
"Independent Post and Telecommunications Authority", in English)
was replaced by a single “super watchdog” body: the Netherlands Authority for
Consumers and Markets (‘ACM’) after the merger of the Netherlands Competition
Authority (NMa), the Netherlands Consumer Authority, and the Independent Post
and Telecommunications Authority of the Netherlands (OPTA). ACM became
operational as of 1st April 2013.

[vi]Interestingly, the national court poses
question(s) of the legitimacy of the court
to deviate from the Recommendation, but it does not refer to the NRA’s
discretion to not follow the recommended costing methodology, which is the
situation in some other Member States.

[vii]Directive 2002/19/EC of the European Parliament and of the Council of 7
March 2002 on access to, and interconnection of, electronic communications
networks and associated facilities (Access Directive).

Thursday, 26 May 2016

After a draft
was leaked last week, the Commission proposal
to revise the Audiovisual Media Services Directive
(AVMSD) is now out. Once again we see
the Commission proposing the roll-out rather than the roll-back of regulation
in the face of sector change. The
following provides an overview of some of the issues.

The first change is an extension
of material scope. The Commission
explains in its Memo/16/1895
that a ‘limited extension’ will occur as the new proposal applies to ‘video-sharing
platforms’, such as YouTube.
“Video-sharing platform services” are defined in new Article 1(aa) AVMSD
(Art. 1(1)(b) of the proposal):

‘… a service, as defined by
Articles 56 and 57 of the Treaty on the Functioning of the European Union, which
meets the following requirements:

(i)the service consists of the storage of a large
amount of programmes or user-generated videos, for which the video-sharing
platform does not have editorial responsibility;

(ii)the organisation of the stored content is determined
by the provider of the service including by automatic means or algorithms, in
particular by hosting, displaying, tagging and sequencing;

(iii)the principal purpose of the service or a
dissociable section thereof is devoted to providing programmes and user-generated
videos to the general public in order to inform, entertain or educate;

(iv)the service is made available by electronic
communications networks within the meaning of point (a) of Article 2 of
Directive 2002/21/EC.’

The phraseology and organisation
here is different from the leaked draft. It makes clear the cumulative nature
of the conditions but also clarifies that the organisational features of the
video-sharing platforms identified are illustrative not an exclusive list. It is also starting to engage with the issues
surrounding editorial choice in an environment where ‘suggestions’ are made by
programming – following big data profiling or just paid prominence. Moreover,
the proposal integrates the point that such platforms can be caught if a
‘dissociable segment’ satisfies the definition, whereas the leaked version had
a separate subclause (a ter) that applied a principal purpose test not just to
video-sharing platforms but services defined in (1)(a)(i).

No doubt there will be much
comment on the workability of this definition – not least where it draws the
boundaries. Will there be difference in treatment between Instagram, Flickr and
other photo-sharing sites, Twitter and Facebook (both of which have video
capability, or link to videos) and Youtube, Vine and Vimeo; and are these sites
similar to Dailymotion and maker.tv? For now, note the centrality of the
concepts of ‘programme’, which by contrast to the leaked draft, gets a new
definition (in Article 1(1)(b) AVMSD, replaced by Art. 1(1)(c) proposal), and
‘user-generated video’ (added to the AVMSD as (1)(ba)). This latter definition
covers material created by end-users, but also material that such users may be
re-using by uploading. This means the (unlawful) uploading of professional
falls within the definition, but also material the creators of which are
unknown.

The definition of programme does
not apply just to video-sharing platform services, but is a central element in
determining the scope of the AVMSD. So,
Rec. (3) (which was Rec 11 in the leaked draft) specifies that the AVMSD
‘should remain applicable only to those services the principal purpose of which
is the provision of programmes to inform, entertain or educate’. The purposes here are so broad that they can
exclude nothing; the determinative element is therefore the programme. This issue was the subject of litigation in
the context of a press site which contained short video clips in New Media Online
GmbH v. Bundeskommunikationssenat
(Case C-347/14), in which the ECJ ruled that videos under a subdomain of a
newspaper website could fall under the definition of a ‘programme’ within the
AVMSD (an approach from which OFCOM has arguably differed in respect of its
interpretation of the UK implementing regulations). This position is reflected in Rec. 3, which
notes that stand alone parts of newspaper sites can fall within AVMSD as can
channels within video-sharing platforms.
Radio remains outside the AVMSD.

Under the current AVMSD,

(b) ‘programme’ means
a set of
moving images with
or without sound
constituting an individual
item within a
schedule or a
catalogue established by
a media service
provider and the
form and content
of which are
comparable to the
form and content
of television broadcasting. Examples
of programmes include
feature-length films, sports
events, situation comedies,
documentaries, children’s programmes
and original drama;

The proposal removes the phrase
‘and the form and content of which are comparable to the form and content of
television broadcasting’ suggesting a move away from traditional television as
the benchmark and towards a more open and arguably broader conception of just
‘an individual item’.

Rec 12 of the leaked draft is now
found at Rec 26 and 27, slightly amended so as not to be limited to ‘video
sharing’ platforms, though these are seen to raise particular issues. Rec. 13 of leaked draft is now at Rec. 28 in
a slightly amended form. This change
reflects the fact that the recitals refer to content restrictions rather than
to scope, though Rec 28 contains the implicit acknowledgment that the proposal
takes the possibility of regulation beyond those with editorial responsibility
(even that at a very blunt level of choice – as in OTT services). The Explanatory Memorandum skirts this issue,
recognising that there will be a point of interplay with Articles 14 and 15 of
the e-Commerce
Directive (ECD). Those provisions provide immunity from damages for hosts
with no knowledge of problematic content and prohibit the imposition of
monitoring requirements (see also Rec. 30).
The proposal also recognises the need to include those services
providers that are not established within the EU but are part of a group so as
to ensure effectiveness of protection (Art. 28b). In this context, we might be reminded of the
reasoning of the Court in determining jurisdiction under the Data Protection
Directive in Google
Spain: legal form was not determinative of this question, but instead
the business reality. OFCOM in its
response to the Commission’s consultation last year expressed concern about
rules that would be ‘disproportionate and impractical’. These provisions need also to be understood
about the on-going trade negotiations with third countries, such as TTIP, which
may affect their feasibility.

One of the main concerns with
regard to video-sharing platforms is hate speech the understanding of which –
in relation to all regulated platforms - ‘should, to an appropriate extent’ be
aligned to Framework
Decision 2008/913/JHA (concerning criminal expressions of racial hatred),
specifically as regards the grounds on which hatred may be incited (Rec.
8). What this means in practice, given
the qualifiers used, as well as the relationship with the ECD in respect of
video-sharing platforms, is uncertain (see Art. 28a(5)). New Art. 6 AVMSD simply imposes on Member
States the obligation to use ‘appropriate means’, the meaning of which is
elaborated in Art. 28a. That provision points to a balancing of competing
interests, which may allow for a certain degree of subjectivity and variation
across Member States. Art. 6a deals
specifically with the protection of minors from a wider range of content – that
likely to impair physical mental or moral development. This envisages the need to give information
to viewers so that they may make appropriate choices of viewing, rather than
the imposition of technical measures.

Another contentious issue has
related to the country of origin (COO) principle, specifically where AVMS
providers engage in forum shopping and ‘broadcast back’ to the ‘original’
target country. This has always been
problematic, with a body of jurisprudence on abuse of rights leading to
specific exception provisions in the AVMSD.
The idea of COO, however, has always been popular with industry players
as it avoids re-versioning costs and other costs associated with separate markets. Whatever the view on COO, the anti-abuse provisions
in AVMSD were complex and the issue of establishment open to interpretation. The principle of freedom of re-transmission
is restated but the possibility of derogating is extended to all audiovisual
media services, not just broadcasting as is currently the case (see proposed
Art. 3(2) – note differences in procedure between linear and non-linear
services apply). The grounds are those
set out in Art 6, which contains an extended category of grounds of hate speech
prohibited, and new Art. 12 which contains the ‘pornography provision’: transmission
of relevant material is permitted, but in a way so that minors cannot access
the material. This applies to all AVMS
providers. The current broadcasting-only,
protection of minors provisions (Art. 27 AVMSD), which currently act as triggers
for the Art. 3 procedure, will be deleted.

While the AVMSD was a minimum
harmonisation directive, recognised by Art. 4(1) AVMSD which allowed Member
States to impose higher standards in respect of all fields coordinated by the
directive, the proposal is now to limit the issues in respect of which Member
States may impose stricter rules to Art. 5 (information obligations), 6 (hate
speech), 6a (development of minors), 9 (standards for commercial
communications), 10 (sponsorship), 11 (product placement), 12 (protection of
minor- technical measures), 13 (on-demand quotas), 16 (tv European quotas), 17
(tv independent quotas), 19-26 (advertising and teleshopping rules), 30 (NRA)
and 30a (ERGA). In respect of the other
provisions, it seems the AVMSD provides maximum standards. It is notable that this latter category
includes the provisions that are specific to video-sharing platforms as well as
long-standing provisions such as the news reporting provisions.

There has been some ‘alignment’
of rules for linear and video on demand services (e.g. Art. 12). This at an abstract level makes sense. Commentators suggest that the industry trend
is for entertainment, television and similar companies to focus on making and
assembling content for distribution across the multiplicity of digital
platforms available, in ways appropriate to those platforms but between which
there may be overlap of form and content. Certainly, there is inter-platform
competition. So these changes are aimed
at ensuring the mythical ‘level playing field’.

The provision that has caught
some attention when the proposal was leaked was that which imposes a European
quota requirement on on demand AMS providers: at least 20% of the catalogue has
to be European, and these works should be given prominence (Art. 13(1)). It replaces the current provision which, in
the words of the Commission ‘leaves room for testing different approaches’ but
which potentially ‘unlevels’ the playing field.
Note that there is no ‘so far as practicable’ phraseology in this
obligation (by contrast with the long-standing obligation on broadcasters),
although member States may waive obligations in relation to small and micro
enterprises (Art. 13(5)). The obligation
of ‘prominence’ is also not qualified (contrast the UK rules regarding ‘due
prominence’ of PSB). Presumably it is intended at address the point made by
the Society of Audiovisual Authors that currently on Netflix ‘where you have to
look for European works (or even national works) under the rubric “Foreign
Films”’ – not necessarily the most enticing branding.

The current TV quotas rules have
not addressed the problem of scheduling undermining the effectiveness of the
quotas, a point noted in the response to the Commission’s consultation. The definition of “European” has been left
unchanged – as have the tv quotas. This proposal
will no doubt please the EU film industry, though it is likely to be less
popular with the distribution sectors, which are already warning
about strangling a still not mature industry.
Against this background it is noteworthy that Netflix has produced a
series in Europe (Marseille – perhaps to get a stronger foothold in the French
language market) and is about to launch a second, as well as engaging with
local broadcasters (e.g. “Kiss Me First” with Channel 4; “Suburra” with RAI).

The proposal also introduces a
requirement for Member States to set up legally distinct and functionally independent
regulators, in many aspects following the Recommendation
of the Council of Europe (Rec (2000) 23). While the desirability of independent
regulators is recognised in most Member States as a way of safeguarding freedom
of expression while achieving other societal and political goals, there is no
such obligation in the current AVMSD framework. The need to introduce such a
requirement may be a response to developments in some of the Member States
where there have been changes to the regulatory architecture in respect of the
media with consequent concerns about media independence. It further specifies
with a non-exhaustive list the remit on such regulators: media pluralism, cultural diversity, consumer
protection, internal market and the promotion of fair competition. These roles must be established in law and
carry with them enforcement powers. A
right of appeal for viewers/end-users must be provided. Significantly, this requirement applies
across all AVMS providers, including video-sharing platforms.

The proposal also formalises the European
Regulators Group for Audiovisual Media Services (ERGA) (which was established
on the basis of a Commission Decision
in 2014), in response to a perceived need for greater senior level cooperation in
European audiovisual policy developments. The response to the group has been
mixed, some questioning whether it adds anything to the existing groups, such
as the Contact Committee and the European Platform of Regulatory Authorities
(EPRA) which exists outside the EU framework. Alternatively, given the proposed
expansion of the AVMSD and the uncharted territory awaiting the regulators, a
mechanism for coordination may be important for the functioning of the COO
principle. ERGA has already produced
reports for the Commission on independence; on the protection of minors in a
converged environment; and on material jurisdiction as part of the preparation
for the review of the AVMSD.

Historically, the broadcasting
and now the audiovisual sector has revealed deep divides between member states
and also between various sectors of industry. The Commission has no doubt
attempted to produce a balance of interests after an extensive review
process. What will remain once the Council and the European Parliament
start to look at this, especially after what is likely to be intensive
lobbying, is anybody's guess. It may
even be affected by Brexit; while the directive should be agreed before any UK
exit, surely the UK’s negotiating position would be weakened between any ‘no’
vote and actual exit, shifting the balance between the free market and
dirigiste Member States.

Tuesday, 24 May 2016

Stian Øby Johansen, PhD fellow at the University of Oslo
Faculty of Law*

Yesterday, 23 May 2016, the Grand
Chamber of the European Court of Human Rights (ECtHR) delivered its judgment in the case of Avotiņš v. Latvia. This seems to be
the ECtHR’s first detailed appraisal of the so-called Bosphorus presumption (the
rule on the relationship between EU law and the ECHR) after the Court of
Justice of the European Union (CJEU) in Opinion
2/13 rejected a draft agreement providing for the accession of the EU
to the European Convention of Human Rights (ECHR). It also provides a first
glimpse of how the ECtHR views the EU law principle of mutual trust, which has
become particularly dear to the CJEU over the last couple of years.

THE BOSPHORUS PRESUMPTION AND
OPINION 2/13

For the uninitiated: the Bosphorus presumption
refers to a doctrine in the case-law of the ECtHR that goes back to the 2005 judgment in Bosphorus
Hava Yolları Turizm ve Ticaret Anonim Şirketi v. Ireland. In that judgment
the ECtHR first stated, in line with previous case-law, that member states of
an international organization (such as the EU) are still liable under the ECHR
for “all acts and omissions of its organs regardless of whether the act or
omission in question was a consequence […] of the necessity to comply with
international legal obligations” (Bosphorus para
153). It also recognized “the growing importance of international cooperation
and of the consequent need to secure the proper functioning of international
organisations” (Bosphorus para.
150). In an attempt to reconcile these two positions, the ECtHR established
what is now known as the Bosphorus presumption
or the presumption of equivalent protection of ECHR rights by the EU, even
though the EU is not a party to the ECHR:

155. In the
Court’s view, State action taken in compliance with such legal obligations is
justified as long as the relevant organisation is considered to protect
fundamental rights, as regards both the substantive guarantees offered and the
mechanisms controlling their observance, in a manner which can be considered at
least equivalent to that for which the Convention provides […]. By “equivalent”
the Court means “comparable”; any requirement that the organisation’s
protection be “identical” could run counter to the interest of international
cooperation pursued […]. However, any such finding of equivalence could not be
final and would be susceptible to review in the light of any relevant change in
fundamental rights protection.

156. If such
equivalent protection is considered to be provided by the organisation, the
presumption will be that a State has not departed from the requirements of the
Convention when it does no more than implement legal obligations flowing from
its membership of the organisation.

However, any
such presumption can be rebutted if, in the circumstances of a particular case,
it is considered that the protection of Convention rights was manifestly
deficient.

Many have been curious about
whether the ECtHR would modify the Bosphorus
presumption following the rather
belligerent rejection of EU accession to the ECHR by the CJEU in Opinion
2/13. In the foreword of the ECtHR’s 2015 Annual Report its President, Guido
Raimondi, indeed seemed to signal an interest in shaking things up (emphasis
added):

The end of the
year was also marked by the delivery on 18 December 2014 of the Court of
Justice of the European Union’s (CJEU) eagerly awaited opinion on the draft
agreement on the accession of the European Union to the European Convention on
Human Rights. [T]he CJEU’s unfavourable opinion is a great disappointment. Let
us not forget, however, that the principal victims will be those citizens whom
this opinion (no. 2/13) deprives of the right to have acts of the European
Union subjected to the same external scrutiny as regards respect for human
rights as that which applies to each member State. More than ever, therefore,
the onus will be on the Strasbourg Court to do what it can in cases before it
to protect citizens from the negative effects of this situation.

Yet, in the ECtHR Grand Chamber
judgment in the case of Avotiņš v. Latvia, it can clearly be seen that
– spoiler alert – the Bosphorus presumption
is still alive and kicking. Indeed, as I will show below, the ECtHR for the
first time applies it to a case concerning obligations of mutual recognition
under EU law. This is notable, since one of the main arguments the CJEU put
forward in Opinion
2/13was that EU accession to the ECHR posed such a big threat to the
principle of mutual trust that it would “upset the underlying balance of the EU
and undermine the autonomy of EU law” (Opinion 2/13 para 194).

BACKGROUND TO THE CASE

Before we look at how the Grand
Chamber applied the Bosphorus, it is necessary to summarize the key facts of
the case. Mr Pēteris Avotiņš is a Latvian national, who in May 1999 borrowed
100 000 US dollars from a company named F.H. Ltd. and undertook to repay that
sum with interest by 30 June 1999. The loan contract was governed by Cypriot
law, and Cypriot courts had non-exclusive jurisdiction to hear any disputes
arising out of it.

In 2003, F.H. Ltd. brought
proceedings against Avotiņš in a Cypriot district court, alleging that he had
not repaid the above-mentioned debt. Since Avotiņš did not reside in Cyprus,
notice of the proceedings and summons to appear had to be served on the
applicants by Latvian authorities. There is some factual disagreement regarding
the serving of this application (see para 19 of the judgment). It seems as if
the summons slip had been signed, but the signature on the slip did not appear
to correspond to the applicant’s name. Nevertheless, the Cypriot court ruled in
Avotiņš’ absence on 24 May 2004, and ordered him to pay F.H. Ltd. 100 000 US
dollar plus interest. According to the Cypriot judgment, the applicant had been
duly informed of the hearing, but had not attended.

In February 2015, F.H. Ltd.
applied to the Riga City District Court seeking recognition and enforcement of
the Cypriot judgment. This request was first rejected, due to discrepancies
regarding the postal address of Mr. Avotiņš. This rejection was appealed by
F.H. Ltd. to the Riga Regional Court, which quashed the District Court’s
rejection. Upon reexamination of F.H. Ltd.’s application by the District Court
the application was granted in full – without the parties being present.

According to Avotiņš, it was not
until 15 June 2016 that he became aware of the Cypriot judgment and the
District Court order for its enforcement. He contacted the District Court
immediately and acquainted himself with the Cypriot judgment and the Latvian
order. Interestingly, before the ECtHR the Latvian authorities did not dispute
these facts.

This is where things get complex
(see paras 27-35 of the judgment), and I can for the sake of brevity only give
a brief summary of the facts from this point out. First, Avotiņš did not
attempt to appeal the Cypriot judgment. However, he decided to appeal the
Latvian enforcement order on the grounds that it violated the
Brussels I regulation (concerning jurisdiction over and recognition of
civil judgments), which is part of EU law, as well as rules of Latvian civil
procedure. Second, the Regional Court in October 2006 accepted Avotiņš’
submissions, and quashed the enforcement order. The District Court seemed to
find that the Cypriot judgment was not enforceable due to the lack of the
certificate referred to in Article 54 of the Brussels I regulation. Third, F.H.
Ltd. appealed the October 2006 order of the Regional Court to the Supreme
Court. At the start of the Supreme Court hearing in January 2007 F.H. Ltd.
submitted copies of inter alia the certificate referred to in Article
54 of the Brussels I regulation. Later the same day the Latvian Supreme Court
quashed the October 2006 order of the Regional Court, and ordered the
recognition and enforcement of the Cypriot judgment. In doing so, the Supreme
Court held that under article 36 of the Brussels I regulation a foreign
judgment “may under no circumstances be reviewed as to its substance” (para 34
of the judgment, citing the January 2007 judgment of the Latvian supreme
court).

THE CASE BEFORE THE ECTHR

The applications

Avotiņš then filed complaints
against Latvia and Cyprus before the ECtHR. The application against Cyprus was
rejected, due to being too late (see para 97 of the judgment, referring to a
ECtHR decision of 3 March 2010). However, his application against Latvia was
filed within the time-limits.

In his application against
Latvia, Avotiņš argued that the Latvian Supreme court had infringed his right
to a fair hearing, by recognizing and enforcing the Cypriot judgment which in
his view was defective as it had been given in breach of his right to a defence.
Several third parties intervened in the latter case, including the European
Commission, which provided a lengthy submission on the applicability of the Bosphorus presumption to the case
and the compatibility of Brussels I regulation with ECHR article 6 (the right to a fair trial).

The ECtHR’s introductory remarks

The judgment of the ECtHR, which
was adopted by a majority of sixteen votes to one (with two judges appending a
joint concurring opinion), opens with the premise that ECHR article 6 is
applicable to the execution of foreign final judgments. According to the Court
(para 98 of the judgment):

a decision to
enforce a foreign judgment cannot be regarded as compatible with the
requirements of Article 6 § 1 of the Convention if it was taken without the
unsuccessful party having been afforded any opportunity of effectively
asserting a complaint as to the unfairness of the proceedings leading to that
judgment, either in the State of origin or in the State addressed.

The ECtHR then noted that it had
“never previously been called upon to examine observance of the guarantees of a
fair hearing in the context of mutual recognition based on European Union law”
(para 98). However, the ECtHR added it had “always applied the general
principle” that a request for recognition and enforcement of foreign judgments
cannot be granted without the court examining the request “first conducting
some measure of review of [the foreign] judgment in light of the guarantees of
a fair hearing”.

Does the Bosphorus presumption apply?

Following these initial remarks,
the ECtHR went on to consider whether and to what extent the Bosphorus presumption
was applicable to the case. It did so over ten pages (paras 101-127), making
this probably the longest treatment of this famed presumption by the ECtHR to
day.

First, on the scope of the Bosphorus presumption, the ECtHR
confirmed the principles laid down in its previous by referring to the summary
of that case-law in paras 102-104 of its judgment in the Michaud case. From that
case-law it follows that the substantive protection of human rights in the area
of EU law that the Brussels I regulation belongs to is equivalent. In
particular, this is confirmed by article 52(3) of the EU’s
Charter of Fundamental Rights, which stays that the Charter has to be
interpreted consistently with ECHR rights that correspond to it. The
fundamental condition for applying the Bosphorus presumption
was thus fulfilled.

Next, it follows from the ECtHR’s
case-law that two further conditions must be satisfied for the Bosphorus presumption to apply.
These are (1) the “absence of any margin of manouvre” on the part of the
domestic authorities implementing an EU law obligation, and (2) the “deployment
of the full potential of the supervisory mechanism” provided for under EU law.
Applying these principles to the present case, the ECtHR first found
that the Latvian Supreme Court did in fact not have any margin of manoeuvre in
this case. In coming to this conclusion, the ECtHR pointed to the CJEU’s
case-law on the relevant provisions of the Brussels I regulation, which “did
not confer any discretion on the court from which the declaration of
enforceability was sought” (para 106 i.f.).

The ECtHR’s discussion of the second condition,
the deployment of the full potential of the supervisory mechanisms under EU
law, was much more extensive. The Latvian Supreme Court had not requested a
preliminary ruling from the CJEU regarding the interpretation of the relevant
provisions of the Brussels I regulation. However, this was not decisive for the
ECtHR, which stated (para 109):

this second
condition should be applied without excessive formalism and taking into account
the specific features of the supervisory mechanism in question. It considers
that it would serve no useful purpose to make the implementation of the Bosphorus presumption subject to a
requirement for the domestic court to request a ruling from the CJEU in all
cases without exception […].

Following this statement, the
ECtHR referred to cases where it has found that ECHR article 6 require domestic
apex courts to give reasons when they refuse to refer questions to the CJEU for
a preliminary ruling, “in light of the exceptions provided for by the case-law
of the CJEU” (para 110). However, the ECtHR was quick to add that the review
conducted in those cases differs from that in the present case, where “it
examines the decision not to request a preliminary ruling as part of its
overall assessment of the degree of protection of fundamental rights afforded
by European Union law” (para 110).

For those reasons, the ECtHR
found that “whether the fact that the domestic court hearing the case did not
request a preliminary ruling […] is apt to preclude the application” of the Bosphorus presumption
“should be assessed in light of the specific circumstances in each case” (para
111). It then pointed to the relevant circumstances at play in the present
case: Avotiņš “did not advance any specific argument concerning the
interpretation” of the relevant provisions of the Brussels I regulation, and he
did not request that the Latvian Supreme Court should ask the CJEU for a
preliminary ruling (para 111). Since there was thus norequest for a
preliminary ruling, the fact that the Latvian Supreme Court did not ask for a
preliminary ruling was not “a decisive factor” (para 111). Consequently, the
ECtHR found that also the second condition for the application of theBosphorus presumption
was satisfied.

Was the protection of ECHR rights “manifestly deficient”?

A finding that the Bosphorus presumption applies is
not the end of it, however, since that presumption can be rebutted if the
protection of the rights laid down in the ECHR was “manifestly deficient” in
the present case (para 112). In the opening paragraph of this part of the
judgment, the ECtHR points to the fact that the Brussels I regulation is based
on the principle of mutual trust, and affirmed the importance of this principle
in EU law (para 113):

The Court is
mindful of the importance of the mutual recognition mechanisms for the
construction of the area of freedom, security and justice referred to in
Article 67 of the TFEU, and of the mutual trust which they require.

Nevertheless, the ECtHR soon went
on to stress that the “methods used to create that area must not infringe the
fundamental rights of the persons affected by the resulting mechanisms, as
indeed confirmed by Article 67(1) of the TFEU” (para 114). This statement was
immediately followed by some key critical remarks (para 114, emphasis added):

However, it is
apparent that the aim of effectiveness pursued by some of the methods used
results in the review of the observance of fundamental rights being tightly
regulated or even limited. Hence, the CJEU stated recently
in Opinion 2/13 that “when implementing EU law, the Member States may, under EU
law, be required to presume that fundamental rights have
been observed by the
other Member States, so that …, save in
exceptional cases, they may not check whether that other Member State has
actually, in a specific case, observed the fundamental rights
guaranteed by the EU” […]. Limiting to exceptional cases
the power of the State in which recognition is sought to review
the observance of fundamental rights by the State of origin of the judgment
could, in practice, run counter to the requirement imposed by the Convention according
to which the court in the State addressed must at least be empowered to conduct
a review commensurate with the gravity of any serious allegation of a violation
of fundamental rights in the State of origin, in order to ensure that the
protection of those rights is not manifestly deficient.

By thus requiring domestic courts
to presume the observance of fundamental rights by other member states, as the
EU law principle of mutual trust requires, the domestic courts are “deprived of
[…] discretion in the matter, leading to automatic application of the Bosphorus presumption” (para 115).
Although it is a bit difficult to discern exactly what the ECtHR is alluding to
here, it is hard to disagree that the nature of the mutual trust principle
creates a paradoxical situation (para 115 i.f.); a twofold limitation of the
domestic court’s review of the observance of fundamental rights, due to the
combined effect of the presumption on which mutual recognition is founded and
the Bosphorus presumption of
equivalent protection.

However, despite these apparent
limitations on domestic courts when the principle of mutual trust is at play,
the ECHR, which is a “constitutional instrument of European public order”,
nevertheless requires of them to ensure that there is no manifest deficiencies
(para 116, emphasis added):

"Accordingly, the Court must
satisfy itself […] that the mutual recognition mechanisms do not
leave any gap or particular situation which would render the protection of the
human rights guaranteed by the Convention manifestly deficient. In doing so it
takes into account, in a spirit of complementarity, the manner in which
these mechanisms operate and in particular the aim of effectiveness which they
pursue. Nevertheless, it must verify that the principle of mutual
recognition is not applied automatically and mechanically […] to the
detriment of fundamental rights – which, the CJEU has also stressed, must be
observed in this context […]. In this spirit, where the courts of a State which
is both a Contracting Party to the Convention and a Member State of the
European Union are called upon to apply a mutual recognition mechanism
established by EU law, they must give full effect to that mechanism where the
protection of Convention rights cannot be considered manifestly deficient.
However, if a serious and substantiated complaint is raised before them to
the effect that the protection of a Convention right has been manifestly
deficient and that this situation cannot be remedied by European Union law,
they cannot refrain from examining that complaint on the sole ground that they
are applying EU law."

The test laid down in the final
sentence of the quoted paragraph is a tough one. It is therefore no surprise
that Mr. Avotiņš was unable to meet its criteria.

What is more surprising, though,
is how close he got to doing so. Although the ECtHR found the system of mutual
recognition in the Brussels I regulation to be generally compatible with ECHR
article 6 (paras 117-119), the ECtHR was skeptical about the Latvian Supreme
Court’s interpretation and application of that regulation. Avotiņš had, as
mentioned above, argued that the application for recognition of the Cypriot
judgment should have been refused. According to the ECtHR he “raised cogent
arguments in the Latvian courts alleging the existence of a procedural defect
which, a priori, was contrary to [ECHR article 6] and precluded the
enforcement of the Cypriot judgment in Latvia”. (para 120 i.f., emphasis added)

Moreover, the ECtHR found that
the Latvian Supreme Court applied provisions of the Brussels I regulation that
provided for exceptions to the obligation of mutual recognition too
mechanically. The details here are quite technical, and concern the
determination of the burden of proof – an issue that is not governed by EU law.
In its concluding appraisal of the Latvian Supreme Court’s approach, the ECtHR
stated (para 121): 'This approach, which reflects a
literal and automatic application of Article 34(2) of the Brussels I
Regulation, could in theory lead to a finding that the protection afforded was
manifestly deficient such that the presumption of equivalent protection of the
rights of the defence guaranteed by Article 6 § 1 is rebutted.'

This is as close to a finding of
“manifest deficiency” as we have ever gotten in the ECtHR’s case-law – more on
that later – but again the specific circumstances of the case came to the
rescue. According to Cypriot law Avotiņš had a “perfectly realistic
opportunity” of appealing the seemingly final judgment (para 122). That the
applicant was unaware of this opportunity did not matter, as he when entering
into a loan agreement should have “ensured that he was familiar with the manner
in which possible proceedings would be conducted before Cypriot courts” (para
124).

Consequently, the judgment
fizzles out with a finding that the protection of fundamental rights was not manifestly
deficient, in the specific circumstance of the present case (para 125).

COMMENTS

This judgment is notable for at
least three reasons. First, it is notable for simple fact that it is the first
time the Grand Chamber applies the Bosphorus
presumption since Opinion 2/13. The judgment confirms that the presumption is
still alive and well, as one could probably expect despite some murmuring from
the ECtHR president.

Second, it is notable for being
the first case where the ECtHR goes right up to the edge of finding that a
“manifest deficiency” in the protection of fundamental rights has occurred, but
then backing off at the last second because of a specific feature of the case
at hand. As a side note, though, the ECtHR’s reasoning is less clear than one could
have hoped for here. Since the burden of proof seems to be key to the outcome
of the Latvian Supreme Court’s judgment, and this is an issue that is not
regulated by EU law, one might have argued that the Latvian Supreme Court did in
fact have some “margin of manoeuvre”. It seems as if it could have complied
with both the obligation of mutual recognition and ECHR article 6 by modifying
the Latvian rules on the burden of proof. The reason for the lack of clarity on
the part of the ECtHR here may be caused by opaqueness of the Latvian Supreme
Court’s reasoning; it “tacitly presumed either that the burden of proof laid
with [Avotiņš] or that [a remedy against the Cypriot judgment] had in fact been
available to the applicant” (para 121).

Third, the case is notable for
being the first where Bosphorus presumption
takes the principle of mutual trust head on. Particularly because that
principle has been elevated to constitutional status by the CJEU over the last
couple of years – with Opinion 2/13 as a major catalyst (see, particularly,
Opinion 2/13 paras 191-194). The ECtHR’s judgment is wary of the dangers of
mechanical application of mutual trust obligations, and reaffirms the
principles laid down in Bosphorus. Despite some critical comments, my best
guess is that the CJEU will see this judgment as something of an olive branch
from the ECtHR. From the CJEU’s perspective the case is indeed welcome, as
cases concerning the Dublin Regulation (e.g. M.S.S. v. Belgium and Greece),
where the ECtHR have found that EU Member States violated ECHR article 3 by
sending asylum seekers back to the first EU country they entered, were not been
well received. However, one must not forget that there are important legal differences
between cases such asM.S.S. and the present case of Avotiņš. Notably,
the Dublin regulation does not – despite myths to the contrary –
contain any obligation to send asylum seekers back to the first EU
country they entered. In Avotiņš the situation is markedly different:
there is seemingly a clear obligation on the Latvian authorities to recognize
and enforce the Cypriot judgment. Although, admittedly, the ECtHR’s unclear
reasoning concerning the Latvian rules on burden of proof makes this
distinction a bit less clear.